Terminating an Employee in the Current Economic Environment
The current economic environment has caused employers worldwide to reconsider their staffing needs. Many companies hope that through a process of restructuring, they will achieve greater efficiency during a period of decreased demand for their products or services. Terminating the employment of one or more individuals often appears to be a necessary cost-cutting measure.
However, employers should consider costs associated with a termination and should handle the termination of any employee carefully so as not to invite breach-of-contract, employment-discrimination, or wage-and-hour claims against the company — claims that ultimately may cost the company a great deal more than the employee’s annual salary.
In evaluating whether it makes financial sense to terminate an employee and the manner in which the company should handle a termination, an employer should consider the following checklist:
- Did the employee sign an employment agreement with the company, and if so, does that agreement provide for a minimum period of notice or any severance or benefits for the employee in the event of termination without cause?
- Does the company’s employee handbook address the issue of termination of employment? If so, what are the directives?
- How much is the employee owed in wages? Bonus? Unused vacation?
- What will the employer’s obligation be to the employee with regard to benefits (health, life, disability)? Does COBRA apply to the employee’s health insurance?
- How will the termination affect the employee’s stock options, if any?
- Is the employee an officer or director of the company? If so, what steps must be taken to remove the employee from her position?
- Is the employee in a “protected” class, e.g., over age 40, disabled, pregnant, African American, etc.? If so, what facts, if any, might the employee point to if he were to allege discrimination upon being terminated?
- Is the employee likely to bring a claim against the company and therefore a candidate for a release agreement?
- Even if not required by an employment agreement, should the employee receive severance? If so, how much?
- What company property does the employee have in her possession (laptop, cell phone, blackberry, key, ID)?
- Is the company prepared to offer a letter to prospective employers confirming that the employee’s termination was due to economic considerations and was not performance related?
It is strongly advisable for an employer who does decide to terminate an employee to present the employee with a termination letter drafted by legal counsel, specifying the termination date and any payments or conditions related to the termination. As a general rule, upon termination, the employee’s access to the company’s office and computer system should be cut off without delay. In the event that a former employee ultimately does file a claim of discrimination, breach of contract, or a wage-and-hour violation, the company should contact legal counsel immediately.
Meira Ferziger is the head of the labor and employment practice at Schwell Wimpfheimer & Associates and has significant experience in drafting policies, agreements, employee handbooks and guidelines in compliance with federal and state law. Meira functions as an integral part of the day to day operation of corporate clients by counseling them through their employment-related practices and decisions, and also advises clients as to employment issues that arise from corporate transactions, such as restructurings or acquisitions. She can be reached at meira@swalegal.com or at 646 328 0794.
This SWA publication is intended for informational purposes and should not be regarded as legal advice. For more information about the issues included in this publication, please contact Meira Ferziger. The invitation to contact is not to be construed as a solicitation for legal work. Any new attorney/client relationship will be confirmed in writing.
Filed Under: Labor & Employment , Publications
